It's important to identify your investment goals before determining your risk tolerance. Your goals can help you determine the level of risk you're willing to take.
Your investment horizon is the amount of time you plan to hold your investments. Generally, the longer your investment horizon, the more risk you can take.
Your risk capacity refers to the amount of risk you can afford to take on without impacting your financial situation negatively.
Your personality can also influence your risk tolerance. For example, if you're naturally risk-averse, you may prefer to invest in lower-risk investments.